Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 19 – 23, 2019.

August 20, 2019: The IRS released a proposed regulation that provides corrections to proposed rules that would provide an exception to the unified plan rule for defined contribution multiple employer plans where the employer fails to satisfy qualification requirement or to provide information to determine compliance.

August 22, 2019: The IRS released a proposed regulation that provides special valuation rules for employers and employees to use in determining the amount to include in an employee’s gross income for personal use of an employer-provided vehicle. Notice 2019-08 was issued to implement amendments made to tax code Section 280F, by the 2017 tax act, Pub. L. No. 115-97. In an effort to be consistent with the substantial increase in the dollar limitation on depreciation deductions under Section 280F(a), the proposed regulations would increase, effective for the 2018 calendar year, the maximum base fair market value of a vehicle for use of the fleet-average or vehicle cents-per-mile valuation rule to $50,000. The IRS also stated that to comply with Notice 2019-34, it expects that the inflation-adjusted maximum fair market value for a vehicle for purposes of the fleet-average and vehicle cents-per-mile valuation rules will be included in an annual notice.

August 22, 2019: The IRS issued a notice in which it stated that forthcoming regulations will provide that a domestic partnership or S corporation may apply the rules in Proposed Treasury Regulations Section 1.951A-5, in their entirety, for taxable years that ended before June 22, 2019. The IRS also stated in its notice that a domestic partnership or S corporation will not be liable for penalties for failures under tax code Section 6698, Section 6699, Section 6722, or similar provisions because of a failure to act consistently with Proposed Treasury Regulations Section 1.951A-5 before June 22, 2019. However, to qualify for relief, the domestic partnership or S corporation must provide notice to each partner or shareholder.

August 22, 2019: The IRS released a Treasury Decision in which it released corrections to T.D. 9866, containing final regulations on determining the amount of global intangible low-taxed income (GILTI) included in the gross income of certain US shareholders of foreign corporations, including US shareholders that are members of a consolidated group.

August 23, 2019: The IRS issued a notice in which it stated that the nondiscrimination relief for closed defined benefit plans provided for in Notice 2014-5 is extended to plan years beginning before 2021 if certain conditions outlined in its Notice 2019-49 are satisfied. Notice 2014-5 permits a DB/DC plan that includes a closed defined benefit plan and that satisfies certain conditions set forth in the notice to demonstrate satisfaction of the nondiscrimination in amount requirement of Treasury Regulations Section 1.401(a)(4)-1(b)(2) on the basis of equivalent benefits even if the DB/DC plan does not meet any of the existing eligibility conditions for testing on that basis under Treasury Regulations Section 1.401(a)(4)-9(b)(2)(v). The IRS extended the relief based on the anticipation of final regulations under tax code Section 401(a)(4).

August 23, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Alex Ruff in our Chicago office for this week’s roundup.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 12 – 16, 2019.

August 12, 2019: The IRS issued a news release announcing that John Moriarty has been selected as the new associate chief counsel, Income Tax and Accounting. The Income Tax and Accounting (ITA) Division in Washington, DC, provides legal advisory services regarding fundamental rules of the federal tax system, including a wide variety of income tax and tax accounting issues. Mr. Moriarty has served as deputy associate chief counsel (ITA) since April 2012. In 2017, he served as acting associate chief counsel, Passthroughs and Special Industries for 11 months. He has helped guide ITA through implementation of the recent Tax Cuts and Job Act. Prior to joining the Office of Chief Counsel, Moriarty was a tax attorney with several private-sector organizations.

August 12, 2019: The IRS released a revision to its Internal Revenue Manual that would provide additional guidance to better explain who can bind Corporations and Consolidated Groups in the statute extension process and examples of how to enter the information on the statute extension forms.

August 13, 2019: The IRS released a revision to its Internal Revenue Manual that would clarify actions examiners must take to analyze and document Currency Transaction Report data during an audit. Financial institutions, including casinos, must report each receipt and each withdrawal of currency exceeding $10,000 by filing a FinCEN Currency Transaction Report (CTR), the IRS explained. The guidance is effective immediately.

August 13, 2019: The IRS released a revision to its Internal Revenue Manual that would provide for updated acceptable Form 4506, Request for Copy of Tax Return, series revisions. Forms 4506 must have an acceptable revision date in order to process, the IRS stated. Instructions for third party-transcript requests were also added.

August 14, 2019: The IRS issued a revenue ruling in which it stated that an individual’s failure to cash a distribution check in the current year does not permit the individual to exclude the amount of the designated distribution from gross income under tax code Section 402(a) and does not alter the employer’s withholding obligations under Section 3405 or Form 1099-R reporting obligations under Section 6047(d). The ruling also noted that Treasury and the IRS continue to analyze issues that arise in other situations involving uncashed checks from eligible retirement plans described in Section 402(c)(8)(B), including situations involving missing individuals with benefits under those plans.

August 16, 2019: The IRS issued a revenue ruling in which it released the prescribed rates for federal income tax purposes for September 2019, including the applicable federal rates (AFR) under tax code Section 1274(d); the adjusted applicable federal rates (adjusted AFR) under Section 1288(b); the adjusted federal long-term rate and the long-term tax-exempt rate under Section 382(f); the appropriate percentages for determining the low-income housing credit under Section 42(b)(1); and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest under Section 7520.

August 16, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Alex Ruff in our Chicago office for this week’s roundup.

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 5 – 9, 2019.

August 5, 2019: The IRS issued a notice of withdrawal of directive LB&I-04-0118-005, which provided guidance on transfer pricing issue election for cost-sharing arrangement stock based compensation. For further coverage of this issue, see our recent post.

August 6, 2019: The IRS released a revenue procedure that provides simplified procedures for insurance companies to obtain automatic consent to change their method of accounting. The revenue procedure applies to any insurance company that changes its method of computing life insurance reserves to comply with Section 807, as amended by the 2017 tax act, Pub. L. No. 115-97, for the first taxable year beginning after December 31, 2017, and provides that adjustments under Section 481(a) are taken into account. The IRS also included insurance companies that change their methods of capitalizing and amortizing specified policy acquisition expenses to comply with Section 848, as amended by the 2017 tax act, for the first taxable year beginning after December 31, 2017. The IRS also stated that the provisions of Revenue Procedure 2015-13 apply to an insurance company covered by the scope of Revenue Procedure 2019-34.

August 7, 2019: The IRS released corrections to proposed regulations that provide several corrections to proposed regulations regarding the limitation on dividends received deduction available for former controlled foreign corporations.

August 7, 2019: The IRS released corrections to temporary regulations regarding the limitation on dividends received deduction available for former controlled foreign corporations.

August 7, 2019: The IRS released corrections to the preamble of final regulations regarding the limitation on dividends received deduction available for former controlled foreign corporations.

August 9, 2019: The IRS released proposed regulations that would provide guidance on classifying cloud transaction as either a provision of services or as a lease of property for international provisions of the tax code and that would modify the rules for classifying transactions involving computer programs by applying the rules to digital content transfers. The proposed regulations would provide a definition of cloud transaction, as a transaction through which a person obtains non-de minimis on-demand network access to computer hardware, digital content, or other similar resources. The proposed regulations would broaden the scope of existing Regulations Section 1.861-18 to apply to all transfers of digital content.

August 9, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

 Special thanks to Alex Ruff in our Chicago office for this week’s roundup.

On July 31, 2019, the Internal Revenue Service (IRS) Large Business and International (LB&I) division formally withdrew its Directive (LB&I-04-0118-005) instructing examiners on transfer pricing selection related to stock based compensation (SBC) in Cost Sharing Arrangements (CSAS). See here for IRS Notice of Withdrawal.

The Directive was issued January 12, 2018, after the Tax Court’s opinion in Altera which invalidated Treasury Regulation § 1.482-7A(d)(2). The IRS appealed Altera and issued Directive LB&I-04-0118-005, which we previously discussed here. The Directive instructed examiners to “[s]top opening issues related to stock-based compensation (SBC) included in cost-sharing arrangements (CSAS) intangible development costs (IDCs) until the Ninth Circuit issues an opinion in the Altera case on appeal.” At the time, the IRS indicated that it would issue further guidance once Altera was finally decided. On June 7, 2019, the Ninth Circuit reversed the Tax Court’s decision. Continue Reading IRS Resumes Examinations of Stock Based Compensation in Cost Sharing Agreements

On August 5, 2019, the Senate confirmed Courtney Dunbar Jones and Emin Toro as nominees to the US Tax Court in a voice vote before leaving for August recess. Jones and Toro will now each serve a 15-year term. President Trump had initially nominated each candidate in 2018, but the Senate was not able to confirm their appointments prior to the end of the last 2018 session—requiring the candidates to be renominated in February of 2019. We reported the initial nominations in “President Trump Announces Intent to Nominate Emin Toro to Tax Court” and “President Trump to Nominate Greaves to Tax Court; Senate Confirms Copeland and Urda.” Furthermore, we reported the renomination of these nominees in “Renominations to Fill Vacancies on the United States Tax Court.” Continue Reading Courtney Dunbar Jones and Emin Toro Confirmed to Tax Court

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of July 29 – August 2, 2019.

July 30, 2019: The IRS issued a list of answers to frequently asked questions in which it addressed questions regarding basis adjustments and the 50% of gross income test in the context of investments in Opportunity Zones as governed provided for within Section 1400Z-2.

July 31, 2019: The IRS issued a news release noting that it has issued a revenue procedure allowing a taxpayer to make a late election, or to revoke an election, for bonus depreciation under section 168(k) for certain property acquired by the taxpayer after September 27, 2017, and placed in service by the taxpayer during its taxable year that includes September 28, 2017.

August 1, 2019: The IRS issued amendments to the preamble for regulations issued to limit the charitable contribution deduction when receiving state and local tax credits. The correction was made by updating an Internal Revenue Bulletin citation for Notice 2019-12 to include the page number after the official publication. The notice provides a safe harbor for individuals who itemize deductions and makes a payment to a tax code Section 170(c) entity in return for a state or local tax credit to treat the portion of such payment that is or will be disallowed as a charitable contribution deduction under Section 170 as a payment of state or local tax for purposes of Section 164.

August 1, 2019: The IRS released proposed regulations providing corrections to previously issued proposed rules under tax code Section 958 (providing proposed regulations regarding the treatment of domestic partnerships for purposes of determining amounts included in the gross income of their partners with respect to foreign corporations) and under Section 951A (providing proposed regulations under GILTI provision 1.951A-2 regarding income subject to a high rate of foreign tax).

August 2, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

 Special thanks to Alex Ruff in our Chicago office for this week’s roundup.

On July 26, 2019, the Internal Revenue Service (IRS) issued a press release informing the public that it is sending more than 10,000 letters to taxpayers with potentially unreported (or misreported) virtual currency transactions. The letters will inform them of the possible reporting requirements that may apply to these transactions and advise them of the need to correct past errors. Continue Reading Watch Your Mailbox: IRS Letters Warning of Cryptocurrency Non-Compliance on Their Way

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of July 22–26, 2019.

July 22, 2019: The IRS issued a revenue procedure in which it issued indexing adjustments required by statute for certain provisions under tax code Section 36B. The IRS is updating the applicable percentage table used to calculate an individual’s premium tax credit for taxable years beginning in calendar year 2020 and the required contribution percentage for plan years beginning after calendar year 2019.

July 22, 2019: The IRS issued a revenue procedure in which it issued, under tax code Section 446, simplified procedures for insurance companies to obtain automatic consent to change method of accounting for discounting unpaid losses, expenses unpaid, estimated salvage recoverable, and unearned premiums attributable to title insurance, to comply with Section 846 as amended by the 2017 tax act. The IRS noted that, for taxable years beginning after December 31, 2017, and ending on or before December 31, 2019, the procedures provided are the exclusive procedures. One simplified method provided is that the requirement of Treasury Regulations Section 1.446-1(e)(3) to file a Form 3115 is waived for a taxpayer making a change in method of accounting under this revenue procedure.

July 22, 2019: The IRS issued a revenue procedure in which it issued salvage discount factors for the 2019 accident year, which must be used to compute the discounted estimated salvage recoverable under tax code Section 832. The IRS listed the discount factors for the 2019 accident year in separate tables for each line of business. The IRS explained that it determined all of the discount factors using the applicable interest rate under Section 846(c) for 2019, which is 2.94%, and by assuming all estimated salvage is recovered in the middle of each calendar year. These discount factors are effective for taxable years beginning after December 31, 2017.

July 23, 2019: The IRS issued a T.D. in which it released final regulations and effected the removal of temporary regulations related to allocation by a partnership of creditable foreign income taxes (IRC §704). These changes will be effective as of July 24, 2019. The regulations seek to improve the operation of an existing safe harbor rule that determines whether allocations of creditable foreign tax expenditures (CFTEs) are deemed to be in accordance with the partners’ interests in the partnership. Treasury Regulations Section 1.704-1(b)(4)(viii) provides a safe harbor under which allocations of CFTEs are deemed to be in accordance with the partners’ interests in the partnership. A comment requested revising the regulations to provide that disregarded payments between CFTE categories are taken into account in computing the net income in a CFTE category. The final regulations address that comment by adding a cross-reference to the disregarded payment rule for assigning income to an activity in Treas. Reg. Section 1.704-1(b)(4)(viii)(c)(3)(iv) in the paragraph that provides the basic definition of an activity to further highlight the interaction of those two paragraphs.

July 23, 2019: The IRS released an announcement stating that it would hold a public hearing on REG-105476-18, relating to the withholding of tax and information reporting with respect to certain dispositions of interests in partnerships engaged in the conduct of a trade or business within the United States, scheduled for August 26, 2019. Speakers’ outlines of topics to be discussed at the hearing must be received by August8, 2019.

July 25, 2019: The IRS issued a revenue procedure in which it provided for a six-month extension to file Form 1065 to certain eligible partnerships. The IRS stated that a timely filed Form 1065 will be treated as a timely and appropriately filed request for a six-month extension of the deadline to file the Form 1065. The relief applies to partnerships under the 2015 BBA that haven’t elected the application of tax code Section 6221(b), timely filed Form 1065, and timely furnished all Schedules K-1 required. Eligible partnerships should write on the top of the superseding Form 1065 “SUPERSEDING FORM 1065 PURSUANT TO REVENUE PROCEDURE 2019-32.”

July 26, 2019: The IRS issued a news release noting that it has begun sending letters to taxpayers with virtual currency transactions that either (1) potentially failed to report income and pay the resulting tax from virtual currency transactions or (2) did not report their transactions properly.

July 26, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Alex Ruff in our Chicago office for this week’s roundup.

On July 19, 2019, the Internal Revenue Service (IRS) Large Business & International (LB&I) division announced the approval of six new campaigns. As in the past, the IRS stated that “LB&I’s goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.” This brings the total number of campaigns to 59! LB&I’s campaign announcements and approved campaigns are available on the IRS’s website.

The six new LB&I campaigns are listed below, verbatim by title and description.

S Corporations Built in Gains Tax
C corporations that convert to S corporations are subjected to the Built-in Gains tax (BIG) if they have a net unrealized built-in gain and sell assets within 5 years after the conversion. This tax is assessed to the S corporation. LB&I has found that S corporations are not always paying this tax when they sell the C corporation assets after the conversion. LB&I has developed comprehensive technical content for this campaign that will aid revenue agents as they examine the issue. The goal of this campaign is to increase awareness and compliance with the law as supported by several court decisions. Treatment streams for this campaign will be issue-based examinations, soft letters, and outreach to practitioners. Continue Reading More IRS “Campaigns?! IRS Announces Six More Examination Campaigns

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of July 15 – 19, 2019.

July 16, 2019: The IRS issued a news release concerning its provision of additional information to help taxpayers meet their filing and payment requirements for the Section 965 transition tax on untaxed foreign earnings. The IRS released this information in a question and answer format that addresses certain general issues that are not specific to the filing of a 2017 or 2018 tax return. The issues addressed include how to make subsequent installment payments when the transition tax is paid over eight years. The Q&As also address the filing of Transfer Agreements and Consent Agreements. For further information on this release, see our discussion here.

July 17, 2019: The IRS issued a revenue ruling in which it released the prescribed rates for federal income tax purposes for August 2019, including the applicable federal rates (AFR) under tax code Section 1274(d); the adjusted applicable federal rates (adjusted AFR) under Section 1288(b); the adjusted federal long-term rate and the long-term tax-exempt rate under Section 382(f); the appropriate percentages for determining the low-income housing credit under Section 42(b)(1); and the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest under Section 7520.

July 18, 2019: The IRS released a publication illustrating the stages of a taxpayer’s journey, from getting answers to tax law questions, all the way through the processes for audits, appeals, collection and litigation. The Taxpayer Advocate Services created the road map to help taxpayers navigate “the road to compliance.”

July 19, 2019: The IRS Large Business and International division (LB&I) issued an announcement that it had approved six additional compliance campaigns. Those compliance campaigns consist of the following: S Corporations Built-in Gains Tax; Post OVDP Compliance; Expatriation; High Income Non-filer; US Territories – Erroneous Refundable Credits; and Section 457A Deferred Compensation Attributable to Services Performed before January 1, 2009. We will separately post on these new campaigns. For a list of prior campaigns, see here.

July 19, 2019: The IRS issued a T.D. in which it issued rules for the process by which social welfare organizations must notify IRS of their intent to operate as tax-exempt organizations and in which it described those procedures the IRS issued for submitting form for notification.  The rules follow the issuance of Notice 2016-9, which provided guidance for submitting notification to the IRS of a social welfare organization’s intent to operate under tax code Section 501(c)(4), as required by Section 506. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) (Pub. L. No. 114-113, Div. Q, §405) created this notification requirement by adding Section 506. According to the regulations, Form 8976, Notice of Intent to Operate Under Section 501(c)(4), must be submitted to the IRS no later than 60 days after the date the organization is organized.

 

July 19, 2019: The IRS issued final regulations in which it released guidance concerning the income inclusion rules under tax code Section 50(d)(5) that are applicable to a lessee of investment credit property when a lessor of such property elects to treat the lessee as having acquired the property. The rules also coordinate the Section 50(a) recapture rules with the Section 50(d)(5) income inclusion rules. The final regulations also provide rules regarding income inclusion upon a lease termination, lease disposition by a lessee, or disposition of a partner’s or S corporation shareholder’s entire interest in a lessee partnership or S corporation outside of the recapture period.

July 19, 2019: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and Chief Counsel Advice).

Special thanks to Alex Ruff in our Chicago office for this week’s roundup.